Reining in Outsourcing Risk

The key to the extended organization is a so-called program office, where the client company and the outsourcing provider collaborate with the help of a finely calibrated monitoring system. He cites two companies that are successfully implementing that concept: IT services provider Wipro of Bangalore, India, and Office Tiger, a BPO firm based in New York City with its main outsourcing operations in Chennai, India. Wipro uses Veloci-Q, a proprietary system that allows clients to monitor a project’s progress online, exercise quality control, and track the performance of small teams and even individuals in real time. Office Tiger’s TigerTracks works similarly. Both tools track four or five times the number of performance metrics that clients request — a significant feature, according to Professor Aron. “One of the reasons they are able to do it is because of the belief that they should become an extension of the client organization,” says Professor Aron. Jon Watts, of Booz Allen, pushes the notion even further: “It’s got to get to the point where the outsourced provider and the client company may form alliances and take financial stakes in one another to make sure their interests are aligned.”

Client companies can better manage data privacy by making sure no individual has complete access to information.

Security concerns, Mr. Watts argues, are a brand-perception issue for the BPO industry — one that threatens growth. In a recent Booz Allen Hamilton survey of offshore security, 24 of the 30 respondents perceived a high risk of threats to their companies’ systems and data at offshore outsourcing locations. Mr. Watts suggests that the industry could model itself on Swiss banking — a business once synonymous with complete client confidentiality. “It was understood that when you said ‘Swiss banking,’ you meant absolute secrecy and absolute, inviolate trust,” he says.

Mr. Watts extends the argument to countries, like India, that have an enormous stake in the success of the BPO industry. They’d do much to allay fears by enhancing protection of intellectual property rights and enforcement of standards. Praful Mittal, an associate at Booz Allen in Chicago who has worked with financial-services and automotive companies on outsourcing such functions as human resources, IT, and overall product design and development, says that U.S. companies are concerned that India and the Philippines have no protections like the Sarbanes-Oxley Act of 2002. U.S. executives “want to make sure that when the CFO and the CEO sign off on the accounts, [the outsourcing providers] comply with the regulations.”

Countries like India that have an enormous stake in the success of the BPO industry would do much to allay fears by enhancing protection of intellectual property rights and enforcement of standards.

That said, there’s no reason to believe that offshoring necessarily entails greater risks. Professor Aron says that there is “absolutely no data” to support the belief that offshore call centers are any more hazardous than U.S. call centers. “Most people I talk to seem to think that for every million transactions, there are more violations in the U.S. than in offshore call centers.” Professor Aron says that U.S. companies may actually expose themselves to fewer risks in offshore centers in the so-called CPI countries — China, the Philippines, and India — than back home. He argues that the incentive for misuse of credit card or Social Security information is much lower in a CPI country. “There are few things an Indian or Chinese agent can do with a Social Security number,” says Professor Aron. “He cannot, from New Delhi or Shanghai, apply for a credit card.” He also notes that call center jobs are highly coveted in the CPI countries and employees are that much more worried about losing them, making them less likely to engage in delinquent behavior.

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